Crypto wants to be treated like money, right up until tax season reminds everyone it is still mostly treated like property. That contradiction is back in focus after the Cato Institute argued the US should scrap capitalgains taxes on Bitcoin$62,477.67 and other cryptocurrencies if it wants genuine currency competition. [1]
Nicholas Anthony, a policy scholar at the Washington, DC-based think tank, said taxing crypto gains makes routine use impractical. Under current US rules, spending Bitcoin$62,477.67, swapping tokens, or using crypto for purchases can trigger a taxable event. That means every coffee, subscription payment, or cross-border transfer can become a record-keeping exercise. Nothing says "future of money" like a spreadsheet. [2]
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Cato's core argument
Cato's position is straightforward: capital gains tax pushes people to hold crypto rather than use it. If an asset is taxed every time its value changes and then gets spent, it behaves less like a medium of exchange and more like a speculative investment. [3]
Anthony's broader point is that this tax treatment suppresses competition between the dollar and alternative monetary networks. In his framing, the US claims to support innovation and market choice while maintaining a tax regime that effectively punishes non-dollar transactional use. The result is a policy mismatch, not a neutral playing field.
That argument leans on a long-running complaint in crypto policy circles. Since the Internal Revenue Service treats digital assets as property, users have to calculate gains or losses whenever they dispose of them. For traders, that is familiar. For someone trying to use crypto as payment rails, it is a deterrent.
Why the tax issue matters now
The timing is notable because crypto market prices are elevated again. Bitcoin$62,477.67 was changing hands around $75,000 in market coverage tied to the debate, with Ethereum$1,686.33 near $2,350. Rising prices tend to sharpen the capital gains problem because more users are sitting on appreciated assets. Spending them means realizing taxes. Holding them delays the bill. [4]
That creates a built-in bias toward hoarding rather than circulation. It also undercuts one of crypto's older promises: functioning as an everyday alternative to bank-based payments. Stablecoins have absorbed much of that use case precisely because they minimize volatility and, in many cases, limit taxable gains from ordinary spending.
Cato is framing this as an international competitiveness issue, not just a tax simplification exercise. The claim is that the US risks pushing crypto activity, startups, and payment experimentation into friendlier jurisdictions if it keeps piling compliance friction onto every transaction. [5]
There is some logic there. Founders and payment firms care less about ideological purity than about operational burden. If using a token in the US creates tax complexity that does not exist elsewhere, businesses may build for markets where users can transact without tracking basis on every movement.
Still, "remove the tax and innovation will flourish" is doing a lot of work. Tax policy matters, but so do securities rules, banking access, anti-money laundering requirements, and state-level licensing. Scrapping capital gains taxes alone would not suddenly make Bitcoin checkout lanes mainstream by next quarter, as everyone definitely predicted.
What change could actually look like
The most politically realistic version of reform may not be a full repeal. A narrower exemption for small personal transactions has been discussed before in Washington. Under that approach, low-value crypto purchases or payments would not trigger capital gains reporting, while larger disposals would remain taxable.
That would address the practical absurdity of taxing minor consumer use without creating a blanket exemption for large investment profits. It would also mirror how some policymakers have tried to distinguish between crypto as a payment tool and crypto as an investment asset.
A full exemption, which is closer to the spirit of Cato's argument, would be harder to sell. Lawmakers would have to weigh lost tax revenue, fairness concerns versus other asset classes, and the risk that sophisticated investors could use broad carveouts aggressively.
The policy friction behind the debate
This fight is really about classification. As long as crypto is legally treated as property for tax purposes, using it like cash remains awkward. Cato's proposal challenges that structure by saying monetary competition should not be taxed into irrelevance. [6]
Critics, however, can point out that many crypto assets are still volatile, thinly used for everyday commerce, and primarily held for appreciation. That makes them look a lot like investment property. The IRS did not invent that perception out of nowhere.
Why it matters
Cato's push adds fresh pressure to a tax framework that almost everyone agrees is clunky, even if they disagree on the cure. The strongest version of the case is not that Bitcoin should be tax-free because crypto is special. It is that small-scale monetary use should not trigger accounting headaches that make legal use less attractive than doing nothing.
If US policymakers want crypto to compete as payment infrastructure rather than just sit on balance sheets, tax treatment is one of the obvious places to look. Whether Congress goes as far as Cato wants is another question entirely. Washington likes innovation in theory. In practice, it usually asks for a form, a filing, and a taxable event.
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